Assume Ralph Enterprises reported $200,000 each year for financial reporting pur
ID: 2584827 • Letter: A
Question
Assume Ralph Enterprises reported $200,000 each year for financial reporting purposes in 2014, 2015, and 2016. For tax purposes, the company reported $400,000 of revenue in 2014, $100,000 in 2015, and $100,000 in 2016. The only expense, other than income taxes, which Ralph pays in cash, is his salary of $50,000 in each of the three years. His $50,000 salary is a deductible expense for both financial reporting and tax purposes. The tax rate is 30 percent.
Required:
a. How much income tax did Ralph pay for the year ending December 31, 2015? _____________
b. What was the income tax expense on Ralph Enterprises income statement for the year ending December 31, 2015? _________________
c. What was is the amount of the deferred tax asset or deferred tax liability shown on Ralph Enterprises balance sheet on December 31, 2015? __________________________
d. Was the amount in c. above (circle one) (a) deferred tax asset or (b) deferred tax liability?
Explanation / Answer
a)Income tax paid for december 31 2015 : Taxable income *Tax rate
= 50000 *.30
= $ 15000
**Taxable Income = 100000Revenue -50000salary=50000
b)Income tax expense = Income as per books *Tax rate
= 150000*.30
= $ 45000
**Income :200000-50000=150000
c)Taxable income : 400000-50000=350000
Accounting income = 200000-50000=150000
d)Its deferred tax asset ,since in 2014 tax paid was more than tax expense for that year to be reversed in future years.
**assuming all difference between taxable and accounting income is due to temporary difference.
Deferred tax asset created in dec 31 2014 [350000-150000]*.30 60000 less:deferred tax asset reversed in dec 31 2015 [45000 tax expense-15000tax paid] -30000 Deferred tax asset reported at 31 dec 2015 30000Related Questions
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